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Facts
The assessee filed returns for AY 2011-12 and 2013-14. For AY 2011-12, the case was reopened under Section 147, alleging undisclosed immovable property purchases. For AY 2013-14, an addition was made on account of sale of lands treated as business income, not agricultural income. Penalty proceedings were also initiated.
Held
The Tribunal noted that the assessment and penalty orders were passed by recharacterizing land transactions as business activity, despite the assessee's consistent plea of them being capital assets. The CIT(A) had dismissed the appeals ex parte without proper examination. The Tribunal held that the appeals should be restored to the Assessing Officer for de novo adjudication.
Key Issues
Whether the purchase and sale of lands were capital assets or stock-in-trade/business activity, and the validity of additions and penalties imposed.
Sections Cited
143(1), 147, 2(14)(iii), 69, 271(1)(c), 44AB, 271B, 263, 143(3), 10(1), 234A, 234B, 234C, 271B
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V.MAHADEOKAR
,450, 470 and 471/Ahd/2024 2 and consequent penalties, they are being disposed of by way of this consolidated order.
Brief Facts:
2. The assessee is an individual who filed his return of income for A.Y. 2011–12 on 01.12.2011 declaring total income of Rs.1,59,080/-. The return was initially processed under section 143(1). However, based on information received during the assessment proceedings for A.Y. 2013–14, the case was reopened under section 147, as it was found that the assessee had purchased immovable properties aggregating to Rs.1,10,75,262/- during the financial year 2010–11, which were not disclosed in the return filed for A.Y. 2011–12. The details of the land purchases were collated from registered sale deeds and included Rs.72,72,517/-, Rs.4,12,924/-, and Rs.33,89,821/-. These lands were jointly purchased with other individuals. During reassessment proceedings, the Assessing Officer noted that the said investments were not reflected in the books of account nor was any explanation offered regarding the source of funds. The AO also held that the assessee failed to produce acceptable evidence to demonstrate that the land was agricultural in nature or that the claim of exemption under section 2(14)(iii) could be supported by competent certification. Consequently, an addition of Rs.1,10,75,262/- was made under section 69 of the Act as unexplained investment. Penalty proceedings were also initiated under section 271(1)(c) for furnishing inaccurate particulars of income.
,450, 470 and 471/Ahd/2024 3 3. The AO further recorded that the assessee had not maintained books of account, despite the magnitude of investment, and treated the same as turnover of a proprietary concern. The AO was of the view that in light of such financial transactions, the assessee was required to get his accounts audited under section 44AB of the Act. As no such audit was conducted, penalty proceedings under section 271B were initiated for failure to comply with section 44AB. A show cause notice was issued, but the assessee failed to respond or provide any explanation. Accordingly, the AO levied a penalty of Rs. 55,376/- being 0.5% of the deemed turnover (investment) of Rs. 1,10,75,262/-, vide order dated 28.06.2019. The said order was passed with prior approval of the Addl. CIT, Range 6(1), Ahmedabad.
For A.Y. 2013–14, the assessee filed his return of income on 01.04.2014 declaring income of Rs. 2,02,630/-. The assessment was originally completed under section 143(3) on 29.02.2016. However, the Principal Commissioner of Income Tax-6, Ahmedabad passed an order under section 263 on 22.03.2018, setting aside the original assessment on the ground that the Assessing Officer failed to examine the nature and taxability of the land sale transactions. The reassessment pursuant to the 263 order was completed on 28.06.2019 under section 143(3) read with section 263. In this reassessment, the AO observed that the assessee, along with co-owners, had sold lands during the year for a total consideration of Rs. 2,74,59,970/-. After reducing the cost of acquisition of Rs. ,450, 470 and 471/Ahd/2024 4 70,35,635/-, the net surplus of Rs. 2,04,24,335/- was claimed by the assessee as exempt agricultural income under section 10(1). The AO, however, treated the entire surplus as business income. It was held that the the pattern of purchase and sale of land indicated a profit motive and constituted an adventure in the nature of trade. The land was not shown in the books as stock-in-trade but was nonetheless treated as such by the AO based on circumstantial evidence. The exemption claimed under section 10(1) was denied, and Rs. 2,04,24,335/- was assessed under the head "Profits and Gains from Business or Profession". Penalty proceedings under section 271(1)(c) were also initiated.
The AO observed that the assessee had earned a surplus of Rs.2,04,24,335/- on sale of immovable properties jointly held with others and claimed the same as exempt agricultural income. The AO, however, treated the transaction as an adventure in the nature of trade and assessed the entire surplus as business income. Since the sale proceeds of Rs. 2,74,59,970/- were treated as business receipts, and the turnover thus exceeded the audit threshold under section 44AB, the AO held that the assessee was under statutory obligation to maintain books and get the accounts audited. The AO noted that the assessee had failed to maintain any books of account and had also not obtained audit under section 44AB. Show cause notices under section 274 r.w.s. 271B dated 17.12.2018 and 26.12.2018 were issued. As there was no response, the AO proceeded to levy penalty under section 271B amounting to Rs. 1,02,122/-, being ,450, 470 and 471/Ahd/2024 5 0.5% of turnover, vide order dated 28.06.2019, also approved by the Range Head.
6. In both assessment years, the assessee’s appeals before the CIT(A), NFAC, were dismissed ex parte. The CIT(A) recorded that multiple notices were issued but remained non-complied with, and the assessee failed to substantiate his grounds. Relying on judicial precedents such as Estate of Late Tukojirao Holkar v. CWT (223 ITR 480) and New Diwan Oil Mills v. CIT (296 ITR 495), the CIT(A) held that no useful purpose would be served in retaining such appeals and confirmed the additions and penalties made by the AO.
7. Aggrieved by the orders of CIT(A) the assessee is in appeal before us raising following grounds:
In ITA No. 449/Ahd/2024:
1. The ld. CIT-(A) has confirmed the addition made by the Id.AO during the course of assessment has added the sum of Rs.1,10,75,262/- to the total income of the appellant. The ld. CIT-(A) has confirmed the addition made by the Id.AO has made such addition under section 69 of the Act and thus has added the same to the total income of the appellant.
The ld. CIT-(A) has confirmed the action of the Id. AO has erred in law and facts of the case in reopening of assessment u/s 147 of the Act. Under the facts and circumstances of the case the action of reopening is without jurisdiction and not permissible either in law or on fact. The present proceedings, therefore, are required to be quashed.
3. The Id. CIT-(A) has confirmed the action of the Id.AO in changing the activity of the appellant. The Id. CIT-(A) as well as the Id. AO has held that the appellant is engaged in the business activity and thereby has made addition amounting to Rs.1,10,75,262/. The Id. CIT-(A) as well as the Id. AO has held that the activity of purchase and sale of lands were for commercial purposes and not for any agricultural activities.
4. The ld. CIT-A has erred in confirming the action of the Id.AO has changed the nomenclature of the immovable property without considering any evidences on record and without considering the facts of the case. The ld. CIT-(A) as well as the Id. AO has merely made guess work and on hypothetical assumptions such as the holding period, frequency period, the Id. CIT-(A) as well as the Id.AO held that the land is not used for agriculture activity and thus the surplus arising from the same shall be charged to tax.
5. The Id. CIT-A has erred in confirming the action of the Id.AO without bringing any evidences on record has merely made the said addition on the basis of probabilities and purely on presumption basis, estimation and gestures. The act of the Id.AO is purely on guess work basis which is not sustainable under the eyes of law. The assessment order passed by the Id.AO is bad in law and thus deserves to be set- aside.
6. The Id. AO has erred in law and on facts of the case in levying interest u/s 234A/B/C of the Act.
7. The learned Id.AO has erred in law and on facts of the case in initiating penalty u/s 271(l)(c) of the Act.
The ld.AO has erred in law and on facts of the case in initiating penalty u/s.271B of the Act. In ITA No. 450/Ahd/2024
1. The Id. CIT-(A) has confirmed the action of the Id. AO has confirmed the penalty on the appellant under section 27IB of the Act. The Id. AO during the course of assessment proceedings has held that since the purchases turnover of the appellant exceeds the limit for audit of books of accounts u/s. 44AB of the Act and thus the Id.AO imposed penalty on appellant.
2. The appellant is engaged in running a proprietary business wherein maintenance of books of accounts was not required statutorily, therefore the land purchased were not recorded in the books of account. The appellant had treated the said land as Investment. The Id.AO during the course of assessment proceedings change the nomenclature of the land and treated the same as stock in trade and thus concluded that as a business activity of purchase and sale of land. Thus the Id.AO during the course of assessment has imposed penalty under section 27IB.
3. The appellant does not has any intention to carry out any business activity in relation to real estate and thus the said land has not been treated as stock.
4. The penalty order passed by the Id.AO for the penalty amounting to Rs.55,376/- is bad in law and thus the penalty imposed by the Id.AO needs to be deleted.
1. The learned CIT-A has erred in law and in considering the facts and circumstances of the case and has upheld the action of Id. AO and has added the sum of Rs.2,04,24,335/- to the total income of the appellant. The Id.AO h 2. as made such addition under section 69 of the Act and thus has added the same to the total income of the appellant.
3. The Id. CIT-(A) has confirmed the action of the Id. AO and has confirmed the action of the Id. AO and has held that the appellant was engaged in activity of purchase and sale of lands and considering the same, the Id. AO held that the appellant is engaged in the business activity. The Id.AO has that merely because the lands are purchased and sold by a group of 18 persons not being blood relatives, the group is showing characteristic of an AOP and the transactions are adventure in nature with the motive to earn profit.
4. The Id. CIT-A has erred in law in confirming the action of the Id. AO and has changed the nomenclature of the immovable property without considering any evidences on record and without considering the facts of the case. The Id.AO has merely made guess work and on hypothetical assumptions such as the holding period, frequency period, the Id.AO held that the land is not used for agriculture activity and thus the surplus arising from the same shall be charged to tax.
5. The Id. CIT-A has erred in confirming the action of the Id.AO without bringing any evidences on record has merely made the said addition on the basis of probabilities and purely on presumption basis, estimation and gestures. The act of the Id.AO is purely on guess work basis which is not sustainable under the eyes of law. The assessment order passed by the Id.AO is bad in law and thus deserves to be set- aside.
The Id. AO has erred in law and on facts of the case in levying interest u/s 234A/B/C of the Act.
The ld.AO has erred in law and on facts of the case in initiating penalty u/s.271B of the Act. In ITA No. 471/Ahd/2024
The Id. CIT-(A) has confirmed the action of the Id. AO has confirmed the penalty on the appellant under section 27IB of the Act. The Id. AO during the course of assessment proceedings has held that since the ,450, 470 and 471/Ahd/2024 8 purchases turnover of the appellant exceeds the limit for audit of books of accounts u/s. 44AB of the Act and thus the Id.AO imposed penalty on appellant.
3. The appellant is engaged in running a proprietary business wherein maintenance of books of accounts was not required statutorily, therefore the land purchased were not recorded in the books of account. The appellant had treated the said land as Investment. The Id.AO during the course of assessment proceedings change the nomenclature of the land and treated the same as stock in trade and thus concluded that as a business activity of purchase and sale of land. Thus the Id.AO during the course of assessment has imposed penalty under section 27IB.
The appellant does not has any intention to carry out any business activity in relation to real estate and thus the said land has not been treated as stock.
4. The penalty order passed by the Id.AO for the penalty amounting to Rs.1,02,122/- is bad in law and thus the penalty imposed by the Id.AO needs to be deleted.
8. During the course of hearing before us, the learned Authorised Representative submitted that the assessee had filed statement of facts and detailed grounds before the CIT(A) but was unable to upload full supporting evidence in the faceless appeal setup. It was submitted that the lands in question were rural agricultural lands falling outside notified limits and the transactions were investment in nature, not business. The AR submitted that the entire factual background was misunderstood, and the assessee was denied reasonable opportunity to substantiate his claims. It was accordingly prayed that all four matters be remanded to the Assessing Officer for fresh adjudication.
The learned Departmental Representative fairly submitted that he had no objection to the restoration of all four matters to the file of the AO.
We have heard the rival contentions and carefully considered the records. It is evident that the assessment and penalty orders were passed based on a recharacterization of land transactions as business activity, while the assessee’s consistent plea was that the transactions related to rural agricultural land held as capital assets. The quantum additions under section 69 and on account of denial of exemption, and the resultant penalties under section 271(1)(c) and 271B, were confirmed without proper examination of documentary evidence or due consideration by the CIT(A), who dismissed the appeals ex parte.
In the interest of justice and to facilitate fair adjudication, we are of the considered opinion that all four appeals - two quantum and two penalty appeals - deserve to be restored to the file of the Assessing Officer for de novo adjudication. The AO shall consider the nature and source of land transactions, exemption claims, applicability of section 44AB, and penalty issues afresh after granting adequate opportunity to the assessee to present all supporting materials.
At the same time, considering the non-compliance at the earlier stages, we direct the assessee to pay a cost of Rs.5,000/- per quantum appeal (total Rs.10,000/-) to the credit of the Income Tax Department, as a measure to ensure greater diligence in future proceedings.
Accordingly, the impugned orders of the CIT(A) are set aside. The matters are restored to the file of the Assessing Officer ,450, 470 and 471/Ahd/2024 10 for fresh consideration in accordance with law. The assessee is directed to pay a cost of Rs.5,000/- per quantum appeal within 30 days from the receipt of this order.
In the result, all four appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the Court on 8th May, 2025 at Ahmedabad.